Accelerating M&A deal origination

Deal origination is the foundation of any successful acquisition-led growth strategy and, at a time when many companies are considering M&A as their main route to growth, having solid, efficient deal origination processes in place has never been more vital.

The process, of course, involves how buyers source M&A deals and other investment prospects and is the first step in setting potential deals in motion. Beyond this generic definition, deal origination processes can vary, with buyers either using it to generate their own acquisition leads or to identify existing opportunities on the market.

There are several ways of structuring deal origination, including:
- Via an outside party, such as investment bank or private equity firm
- From third-party intermediaries
- Through a dedicated in-house specialist or team

Technology is also becoming an increasingly important part of the process, meaning companies can utilise new, data-driven technology to locate and analyse potential acquisitions.

Whatever way companies may choose to approach deal origination, one of the most important aspects of the process (particularly in an M&A environment as busy and competitive as the current market) is identifying acquisition opportunities quickly.

While it is of course crucial to balance speed with an analytical approach and quality due diligence (in order to prevent targeting the wrong deals), a quick deal origination process can be central to an efficient, successful acquisition strategy.

Benefits of quicker deal origination
There are a wide range of benefits to quicker deal origination, providing the approach is also focused and well thought out. Fundamentally, of course, it can help businesses to execute deals at pace, which will be paramount if a buyer is looking to build a scaled-up acquisition strategy in which one deal quickly follows another.

By identifying, initiating and closing deals more quickly, buyers will then be primed to rapidly move on to their next potential acquisition. As a company’s deal processes become more efficient with time and experience, this is something that will only improve.

Identifying potential acquisition opportunities as quickly as possible will also mean that buyers are best placed to beat potential competitors to deals. If, for example, a buyer’s acquisition strategy is based on targeting off-market acquisitions of companies in financial distress, then having methods in place to identify the early warning signs that a company is struggling means that they will be able to act on the opportunity more quickly.

With the UK currently seeing huge levels of business distress amid rising costs, huge debt piles and flagging consumer confidence (there are currently estimated to be close to 610,000 UK businesses in significant financial distress), an accelerated deal origination process will give buyers the best chance of fully reaping the rewards.

Finally, having deal processes in place that are both quick and efficient can also enable a company to build a reputation as a serious, trustworthy and highly qualified buyer among both vendors and intermediaries, something that could lead to a greater number of acquisition opportunities further down the line.

How can buyers improve and accelerate their deal origination?
One of the main ways that a buyer can develop a quick deal origination process is to build an extensive, far-reaching network of contacts that can help them to source a wide array of potential deals. Utilising both online and in-person networking, an acquisitive company can create a contact book encompassing everyone from investment advisers and sector experts to vendors and insolvency practitioners.

This can enable a firm to garner insider information on potential acquisition opportunities, gain referrals to business owners that may be open to an acquisition, stay abreast of M&A developments in specific sectors and develop a reputation as an active, well-connected and trusted buyer.

As crucial as it is to develop a network of third-party contacts to help source deals, something that is potentially more effective for building an aggressive acquisition strategy is to have access to a dedicated deal origination specialist or team. This is something that a company with the necessary resources could even do in-house.

Doing this can mean that a buyer is not just relying on outside information and tips to inform and dictate their acquisition plans but can also be constantly working on progressing deals and, over time, establish a process in which multiple deals are being sourced and carried out at once.

If a company doesn’t have the facilities to operate a dedicated in-house origination team but is still looking to incorporate dedicated deal origination services into its acquisition strategy, then gaining the backing of an investor, such as a private equity firm, can potentially be even more effective.

With private equity backing, buyers will, of course, benefit from an injection of capital which will significantly bolster their acquisition war-chests. Furthermore, they will also unlock an invaluable source of expertise, advice and information on potential deals, with many private equity firms now operating with large, sophisticated deal origination teams focused solely on sourcing deals for businesses in their portfolio.

TTM Healthcare Solutions is a healthcare services firm which supplies staff to the NHS, HSE and HSC (NI). In August 2022, the company, which is owned by private equity firm Broadlake Capital, completed the double acquisition of workforce management platform ROTA and workforce specialist MMA Healthcare Resourcing.

The double acquisition was identified and sourced by Broadlake through its origination team, led by head of new investments and origination Kevin MacSweeny, who commented: "The recent acquisition of Rota and MMA are a part of the strategic growth plans for TTM.”

"Once we had identified the right partners in ROTA and MMA, and we knew the fit was right, we moved at pace to complete both deals quickly. We would like to thank Philip Ellis and the Optima Corporate Finance Team for introducing us to both the Rota and MMA Healthcare Resourcing opportunities."

You can find out more about how to attract private equity backing for an acquisitive growth strategy in this previous BSR insight.

Aside from the formal structure through which a buyer carries out deal origination, there are also numerous methods they can adopt and incorporate into their processes to enable them to find and execute deals more quickly.

One fundamental exercise that can ensure a buyer only identifies potential acquisitions which truly fit with its model, is to create a detailed, granular profile of the type of businesses that they are interested in acquiring.

This involves establishing set parameters on factors such as the size of business they’d be interested in acquiring (whether defined by headcount or turnover), the sector(s) or sub-sector(s) that they are looking to acquire in, a specific region that potential targets should be based in, or the type of customer/client base that a business serves.

Establishing a detailed, specific profile at the outset of an acquisition drive can ensure that buyers and their advisors spend less time sifting through businesses that are unsuited to the acquisition model and can find and act on the right opportunities at greater speed.

This kind of approach is one that has become far more viable given the proliferation of deal origination technology and online tools over recent years. Buyers can now supplement their deal origination with resources such as aggregation platforms and tools such as data analytics, enabling them to set a clear profile for potential acquisitions, conduct detailed analysis of specific companies to gain deeper insights and more accurately identify suitable targets.

Buyers can also utilise technology and online tools to create databases and detailed watchlists of potential future acquisition targets. By doing this, businesses can always be looking ahead to their next acquisition and monitor or remain in contact with firms that have been identified as potential targets. Such an approach will be vital if a company is looking to build an acquisitive growth strategy with a strong pipeline of potential and in-progress deals.

When looking to source deals quickly, proactivity is key and one of the most proactive approaches that buyers can take is to develop an acquisition strategy that focuses on identifying off-market opportunities.

If a buyer can identify companies that might be open to an acquisition or (in the case of distressed acquisitions) are demonstrating early warning signs that they might be heading for insolvency, then they can move more quickly to pitch themselves to the owner and potentially do a deal directly, rather than dealing with middlemen when a company formally puts itself on the market or enters administration.

Finally, buyers should also take note of the deal origination processes of competing buyers and consolidators in their industry. Taking an active interest in how competitors go about sourcing their deals can help a company to see what other buyers are doing right or wrong and adjust their own processes accordingly, while also gaining greater oversight of M&A trends in their sector.

By locating off-market business opportunities and contacting owners before a business is brought to market, you can stay several steps ahead of the competition (or even cut them out completely). Even if the terms of an acquisition aren’t agreed immediately, making direct contact with an owner early on establishes a rapport and can greatly increase your chances of closing a deal further down the line.

With business distress soaring and M&A offering one of the main routes to growth in an increasingly gloomy economy, having solid deal origination processes in place will be vital for buyers. More pressingly, however, the intensifying competition to acquire the best targets (distressed or otherwise) means that buyers need to move quickly and decisively to secure deals.

An acquisition strategy that combines close scrutiny, proper due diligence and a comprehensive profile for potential acquisitions with a quick, efficient deal origination process will help buyers have the best chance of finding the right deals, standing out from the competition and, ultimately, securing a sustainable path to growth through acquisitions.

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